The European Commission has prohibited, on the basis of the EU Merger Regulation, the proposed takeover of the Irish flag carrier Aer Lingus by the low-cost airline Ryanair. The acquisition would have combined the two leading airlines operating from Ireland. The Commission concluded that the merger would have harmed consumers by creating a monopoly or a dominant position on 46 routes where, currently, Aer Lingus and Ryanair compete vigorously against each other. This would have reduced choice and, most likely, would have led to price increases for consumers travelling on these routes. During the investigation, Ryanair offered remedies. The Commission assessed them thoroughly and carried out several market tests. However the remedies proposed fell short of addressing the competition concerns raised by the Commission.

Commission Vice President in charge of competition policy Joaquín Almunia said: "The Commission's decision protects more than 11 million Irish and European passengers who travel each year to and from Dublin, Cork, Knock and Shannon. For them, the acquisition of Aer Lingus by Ryanair would have most likely led to higher fares. During the procedure, Ryanair had many opportunities to offer remedies and to improve them. However, those proposals were simply inadequate to solve the very serious competition problems which this acquisition would have created on no less than 46 routes."

Ryanair and Aer Lingus are by far the most important carriers operating out of Ireland. They compete directly on 46 routes. It was the third time that the proposed acquisition of Aer Lingus by Ryanair was notified to the Commission. In 2007 the Commission prohibited Ryanair's first attempt to acquire Aer Lingus (see IP/07/893) and this decision was upheld by the EU General Court (MEMO/10/300). In 2009, the second notification by Ryanair was withdrawn.

The Commission took into account the changes in market circumstances since 2007, for example the fact that the market positions of Ryanair and Aer Lingus have become even stronger, with their combined market shares going up from 80% in 2007 to 87% in 2012 for short-haul flights out of Dublin. The number of routes to and from Ireland operated in competition by Ryanair and Aer Lingus has increased from 35 in 2007 to 46 in 2012.

The combination of Ryanair and Aer Lingus would have led to very high market shares on all of these 46 routes:

On 28 routes the proposed merger would have created an outright monopoly.

On 11 further routes, the only alleged competitive constraint to the merged entity would have come from charter airlines. However, this constraint would have remained weak because charter airlines have a very different business model.

Finally, on 7 routes Ryanair and Aer Lingus operate alongside other scheduled carriers. In addition to their very high market shares Ryanair and Aer Lingus are very close competitors - if not each other's closest competitors – on these routes. The reason is that the business model of competing scheduled operators tends to focus on bringing connecting passengers to their own network hubs - typical examples are British Airways (to London Heathrow), Lufthansa (to Frankfurt) and Air France (to Paris Charles de Gaulle) – as opposed to the point-to-point connections that Ryanair and Aer Lingus offer.

The proposed merger would therefore have removed the currently vibrant competition between Ryanair and Aer Lingus on all these routes where their activities overlap.

Moreover, the Commission's investigation confirmed the existence of high barriers to entry stemming, in particular, from Ryanair's and Aer Lingus' strong market positions in Ireland. The market investigation showed that there was no prospect that any new carrier would enter the Irish market after the merger, in particular by the creation of a base at the relevant Irish airports, and challenge the new entity on a sufficient scale.

In short, customers' travelling options would have been substantially reduced and it is unlikely that competitors would have been able to sufficiently constrain the merged entity in its market behaviour. Higher prices for passengers would have been the likely outcome.

Remedies proposed by Ryanair

Ryanair offered several sets of remedies during the procedure. The final remedy package consisted mainly of the divestiture of Aer Lingus' operations on 43 overlap routes to Flybe and the cession of take-off and landing slots to IAG/British Airways at London airports, so that IAG/British Airways would operate on 3 routes (Dublin-London, Shannon-London, and Cork-London). Flybe and IAG committed to operate the routes for 3 years. Additional slot divestitures on London-Ireland routes were also offered.

However, the Commission's investigation demonstrated that these remedies were insufficient to ensure that customers would not be harmed, taking into account the scope and magnitude of the competition concerns raised by the proposed transaction on the 46 routes. In particular, the Commission found that Flybe was not a suitable purchaser capable of competing sufficiently with the Ryanair/Aer Lingus merged entity. The investigation also showed that IAG/British Airways would not constrain the merged entity to a sufficient degree and would have little incentive to stay on the routes beyond a 3 year period. In addition, the Commission could not conclude with the requisite degree of certainty that the proposed commitments could actually be put in place in a timely manner. Nor was it certain that they would work in practice and for a sustained period of time.

During the investigation, the Commission gathered views from a large number of market participants in Ireland and internationally, including competitors, customers, travel agents, consumer associations, public authorities and airport operators. The Commission carried out such market tests on Ryanair's successive remedy proposals three times.

Background

The deal was notified to the Commission for regulatory clearance under the European Union's Merger Regulation on 24 July 2012. On 29 August 2012, the Commission started an in-depth investigation (see IP/12/921). The deadline for a decision was extended to assess the remedies submitted on 7 December 2012. The parties were warned in the Statement of Objections sent in November 2012 that the merger raised serious concerns and could be prohibited.

Since 2004, the Commission has examined 15 mergers and several alliances in the air transport sector. This decision is the third prohibition. The first prohibition related to the initial attempt by Ryanair to acquire Aer Lingus in 2007. The second prohibition decision was about the proposed acquisition by Olympic Air of Aegean Airlines in 2011 (see IP/11/68). All the prohibition decisions were related to transactions involving two airlines having large bases at the same "home" airport.

When assessing airline mergers, the Commission first analyses the effects of the proposed transaction on the routes on which both companies operate. In addition, the Commission takes into account whether the merger would affect the possibility of one airline to discipline the other one by entering a certain route at any given moment. Both questions require particular attention when the merging airlines have large bases at the same "home" airport.

Companies and products

Ryanair is a low-fares carrier operating point-to-point scheduled air services essentially in Europe. The company has a fleet of 305 aircraft and 51 bases across Europe, with the most important bases being London Stansted, Brussels Charleroi, Milan Bergamo, and Dublin. In the IATA summer season 2012, Ryanair operated in particular 62 short-haul routes ex Dublin.

Aer Lingus is an Irish-based carrier. It offers essentially point-to-point scheduled air transport services. Aer Lingus is based principally at Dublin Airport wherefrom it operates a substantial portion of its scheduled flights. In the summer season 2012, Air Lingus (including Aer Arann) operated 66 short-haul routes ex Dublin. Aer Lingus is not a member of any airline alliance and develops a concept of “open network architecture”, whereby its neutrality allows it to partner across alliances and offer connectivity through major hubs to worldwide destinations in addition to carrying point-to-point traffic.

Ryanair’s minority shareholding in Aer Lingus represents 29.8% of Aer Lingus’ total issued share capital and makes Ryanair the largest shareholder in Aer Lingus. This shareholding is currently under review by the UK Competition Commission. The Irish Government is the next largest shareholder with a stake of around 25.1%.

Merger control rules and procedures

The Commission has the duty to assess mergers and acquisitions involvingcompanies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.

The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II). There are currently two other on-going phase II investigations. The first one examines the proposed combination of Munksjö and the European label and processing business of Ahlstrom, in the paper industry (seeIP/12/1338), with a deadline on 16 May 2013. The second phase II investigation concerns Syniverse's project to acquire rival Mach in the data house clearing sector (see IP/12/1439), with a deadline on 30 May 2013.